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Assessment Year Interest earned on FDRs with bank 2009-10 Rs.7,42,295/-

      2010-11                         Rs.20,17,349/-
      2011-12                         Rs.18,25,124/-
      2012-13                         Rs.27,28,485/-

5. The same was deni ed by the Assessi ng Offi cer follo wi ng the rati o l ai d do wn by the Hon'bl e Ape x Court i n Totgars Cooperati ve Sal e Soci et y ( 2010) 322 I TR 283 ( S C) that the i nterest i ncome earned from i nvestment of surpl us funds in Banks and government securi ti es coul d not be attri butabl e to the acti vi t y ca rri ed out by the soci et y and henc e was not enti tl ed for deducti on u/s 80P( 2) ( a) ( i ) of the Act.

11. I n the backdrop of the above facts and proposi ti on of l a w, i t has to be seen whether the i mpugned i nterest i ncome earned from FD Rs coul d be sai d to be earned from the acti vi ti es of provi di ng credi t faci l i ti es to i ts members.

12. The contenti on of the Ld. counsel for assessee consi stentl y before the l o wer authori ti es and even before us i s that the FDRs made wi th bank s were made i n t he normal course of carr yi ng out i ts acti vi ti es of col l ecti ng deposi ts from i ts memb ers. It was contended that t he amount recei ved as depo si ts from i ts me mbers, duri ng th e course of carr yi ng on busi ness, were parke d i n nati onal i zed banks to mai ntai n l i qui di t y and provi de ready avai l abi l i t y of funds for repa yment of de posi ts of the de posi tors and for redempti on of deposi ts on maturi t y. The Ld. counsel for assessee dre w our attenti on to the submi s si ons made b efore the Ld.CI T( Appeal s) reproduced at para 4.2 of the order as under:

16. We are in agreement wi th the contenti on of the Ld.Counsel for the assessee that where the FDR's are made wi th Banks from the operati onal funds of the cooperati ve soci et y duri ng the course of carr yi ng out i ts acti vi t y of provi di ng credi t f aci l i ti es to i ts m embers, the i nter est earned thereon i s i nci dental to the sai d acti vi t y and can be safel y attri buted to the carr yi ng out of the sai d activi t y, Such i nterest earned is thus enti tl ed to deducti on u/s 80P( 2) ( a) ( i ) of the Act. The Hon'bl e Patna Hi gh Court i n the case of Bi har State Cooperati ve Housi ng Federati on Ltd. Vs. CI T (2009) 315 I TR 286 had an occasi on to deal wi th an i denti cal si tuati on wherei n i t was found that the nature of acti vi t y i n whi ch the asses see was i nvol ved , bei ng col l ecti n g deposi ts from i ts members and provi di ng credi t faci l i ties to i ts members, created a si tuati on where short ter m surplus funds were avai l abl e wi th i t whi c h were hence de posi ted i n banks and i nterest earned thereon. The Hon'bl e Hi gh Court hel d that thi s ac t of maki ng depo si ts i n the banks therefore was i nci dental t o the acti vi t y of the assessee of provi di ng credi t faci l i ti es to i ts members and the i ncome earned therefrom, though not di rectl y relatabl e to the said acti vi t y, was i nci dental to that acti vi t y and hence was to be treated as earned i n the course of carr yi ng out that acti vit y and therefore el i gi bl e for deducti on u /s 80P( 2) ( a) ( i ) of the Act. The rel evant fi n di ngs of the Hon'bl e Hi gh Court i n thi s regard are as under:

19. Thus we hol d that where the FDR'S i n banks are made from the operational funds of the cooperati ve soci et y whi l e carr yi ng out i ts acti vi t y of provi d i ng credi t to i ts members, the i nterest earned thereon bei ng i nci dental to carr yi ng out the sai d acti vi t y, i s attri butable to the sai d acti vi t y and hence enti tl ed to deducti on u/s 80P( 2) ( a) ( i ) of the Act.

20. Havi ng sai d so and reverti ng to the facts of the present case, we fi nd that the acti vi t y of the assessee i nvol ves provi di ng credi t faci l i ti es to i ts members, though the consi stent pl eadi ng of the Ld. counsel for assessee before the l o wer author i ti es and even b efore us, i s that the sai d i ncome has been earned by parki ng deposi ts col l ected from i ts members, i n FDRs to mai ntai n l i qui di t y so as to refund the deposi ts as and when demanded. Thi s acti vi t y of the assessee cl earl y does not qual i f y as provi di ng cred i t faci l i ti es to i ts members and i n fact tantamounts to onl y col lecti ng deposi ts from m embers. But at t he same ti me we note that nothi ng i s there on record to bri ng out the nature of acti vi t y carri ed out by the assessee. I t i s necessar y, therefore, to fi rst establ i sh the facts rel ati ng to the case whether the assessee is i nvol ved in the acti vi t y of provi di ng credi t faci l i ti es to i ts members and the deposi ts made i n banks were i n the cour se of carr yi ng o ut these acti vi ti es and the sai d facts need to be e xami ne d and veri fi ed al so. We, therefore, consi der i t fi t to restore the i ssue back to the fi l e of the Assessi ng Offi cer for the l i mi ted purpose of e xami ni ng the acti vi ti es c arri ed out by the assessee s oci et y and whether the deposi ts made by i t i n banks were d one duri ng the course of carr yi ng out i ts stated acti vi ti es and thereafter deci de the i ssue i n accordance wi th l a w.